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MERGER AND DISPOSITION TRANSACTIONS | 9 Months Ended
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Sep. 30, 2021
MERGER AND DISPOSITION TRANSACTIONS [Abstract] |
MERGER AND DISPOSITION TRANSACTIONS |
3) | MERGER, DISPOSITION AND ACQUISITION TRANSACTIONS
Merger On August 12, 2020, Brooklyn, Brooklyn LLC and the Merger Sub entered into the Merger Agreement. The Merger closed on March 25, 2021. After the Merger, Brooklyn changed its name from “NTN Buzztime, Inc.” to “Brooklyn ImmunoTherapeutics, Inc.” The Merger was accounted for as a reverse acquisition, with Brooklyn LLC being deemed the acquiring company for accounting purposes. Brooklyn LLC, as the accounting acquirer, recorded the assets acquired and liabilities assumed of Brooklyn in the Merger at their fair values as of the acquisition date. Brooklyn’s common stock trades on the NYSE American stock exchange under the ticker symbol “BTX”. Brooklyn LLC was determined to be the accounting acquirer based upon the terms of the Merger and other factors including (i) Brooklyn LLC members, having received common stock in the Merger that represented 96.35% of Brooklyn’s outstanding common stock on a fully diluted basis as of immediately after the Merger, (ii) all of the directors of Brooklyn immediately after the Merger having been designated by Brooklyn LLC under the terms of the Merger Agreement and (iii) existing members of Brooklyn LLC’s management having become the management of Brooklyn immediately after the Merger. At the closing of the Merger, all the outstanding membership interests of Brooklyn LLC converted into the right to receive an aggregate of 39,991,625 shares of common stock, of which 1,067,668 shares were issued as compensation to Maxim Group LLC, Brooklyn LLC’s financial advisor (the “Financial Advisor”) for its services to Brooklyn LLC in connection with the Merger. The purchase price of $8,177,614, which represents the consideration transferred in the Merger to stockholders of Brooklyn immediately before the Merger, was calculated based on the fair value of the common stock that those stockholders owned on March 25, 2021, immediately prior to the Merger, because that represented a more reliable measure of the fair value of consideration transferred in the Merger. The purchase price of $8,177,614 was calculated as follows:
Number of shares of common stock owned by Brooklyn stockholders immediately before the Merger |  |  | 1,514,373 |
Multiplied by the fair value per share of common stock (i) |  | $ | 5.40 |
Total purchase price |  | $ | 8,177,614 |
(i) | Based on the closing price per share (post reverse stock split) of the common stock of Brooklyn as reported on the NYSE American stock exchange on March 25, 2021, immediately before the Merger.
Under the acquisition method of accounting, the total purchase price has been allocated to the acquired tangible and intangible assets and assumed liabilities of Brooklyn based on their estimated fair values as of March 25, 2021, the Merger closing date. Because the consideration paid by Brooklyn LLC in the Merger is more than the estimated fair values of Brooklyn’s net assets deemed to be acquired, goodwill equal to the difference is reflected in the unaudited pro forma condensed consolidated balance sheet. The goodwill of $8,588,576 has been calculated using the fair values of the net assets of Brooklyn as of March 25, 2021. The allocation of the estimated purchase price to the tangible and intangible assets acquired and liabilities deemed to be assumed from Brooklyn, based on their estimated fair values as of March 25, 2021, is as follows:
|  | Historical Balance Sheet of Brooklyn at March 25, 2020 |  |  | Fair Value Adjustment to Brooklyn Pre-Merger Assets |  |  | Purchase Price Allocation Pro Forma Adjustment |
Cash and cash equivalents |  | $ | 147,728 |  |  | $ | - |  |  | $ | 147,728 |
Accounts receivable |  |  | 102,517 |  |  |  | - |  |  |  | 102,517 |
Prepaid expense and other current assets |  |  | 329,596 |  |  |  | - |  |  |  | 329,596 |
Property and equipment, net |  |  | 1,015,370 |  |  |  | - |  |  |  | 1,015,370 |
Software development costs |  |  | 1,296,460 |  |  |  | (368,460 | ) |  |  | 928,000 |
Customers |  |  | - |  |  |  | 548,000 |  |  |  | 548,000 |
Trade name |  |  | - |  |  |  | 299,000 |  |  |  | 299,000 |
Accounts payable, accrued liabilities and other current liabilities |  |  | (3,781,173 | ) |  |  | - |  |  |  | (3,781,173 | )
Net assets acquired, excluding goodwill |  | $ | (889,502 | ) |  | $ | 478,540 |  |  | $ | (410,962 | )
Total consideration |  | $ | 8,177,614 |  |  |  |  |  |  |  |  |
Net assets acquired, excluding goodwill |  |  | (410,962 | ) |  |  |  |  |  |  |  |
Goodwill |  | $ | 8,588,576 |  |  |  |  |  |  |  |  |
Brooklyn LLC was obligated under the Merger Agreement to have $10,000,000 in cash and cash equivalents on its balance sheet at the effective time of the Merger. To ensure Brooklyn LLC had the required funds, certain beneficial holders of Brooklyn LLC’s Class A membership interests entered into contractual commitments to invest $10,000,000 into Brooklyn LLC immediately prior to the closing of the Merger. During March 2021, Brooklyn offered to its Class A unit holders an additional 5% rights offering for an additional $500,000 to be raised by a rights offering. Funding to the rights offering was received between February 17, 2021 and April 5, 2021. Disposition On March 26, 2021, Brooklyn sold its rights, title and interest in and to the assets relating to the business it operated prior to the Merger to eGames.com in exchange for a purchase price of $2,000,000 and assumption of specified liabilities relating to that business. The sale was completed in accordance with the terms of the Asset Purchase Agreement. Details of the Disposition are as follows:
Proceeds from sale: |  |  |
Cash |  | $ | 132,055 |
Escrow |  |  | 50,000 |
Assume advance/loans |  |  | 1,700,000 |
Interest on advance/loans |  |  | 67,945 |
Carrying value of assets sold: |  |  |  |
Cash and cash equivalents |  |  | (13,461 | )
Accounts receivable |  |  | (75,153 | )
Prepaids and other current assets |  |  | (123,769 | )
Property and equipment, net |  |  | (1,013,950 | )
Software development costs |  |  | (927,368 | )
Customers |  |  | (548,000 | )
Trade name |  |  | (299,000 | )
Goodwill |  |  | (8,588,576 | )
Other assets |  |  | (103,173 | )
Liabilities transferred upon sale: |  |  |  |
Accounts payable and accrued expenses |  |  | 113,156 |
Obligations under finance leases |  |  | 16,676 |
Lease liability |  |  | 25,655 |
Deferred revenue |  |  | 54,803 |
Other current liabilities |  |  | 148,987 |
Transaction costs |  |  | (265,000 | )
Total loss on sale of assets |  | $ | (9,648,173 | )
Unaudited Pro Forma Disclosure The following unaudited pro forma financial information summarizes the results of operations for the nine months ended September 30, 2021 and 2020 as if the Merger and the Disposition had been completed as of January 1, 2020. Pro forma information primarily reflects adjustments relating to the reversal of transaction costs. Assuming that the Merger and the Disposition had been completed as of January 1, 2020, the transaction costs would have been expensed in the prior period.
|  | Nine months ended September 30, |
|  | 2021 |  |  | 2020 |
Net loss attributable to common stockholders |  | $ | (113,850,769 | ) |  | $ | (5,080,609 | )
Basic and diluted net loss per share attributable to common stockholders |  | $ | (2.82 | ) |  | $ | (0.29 | )
Acquisition On July 16, 2021, Brooklyn and Brooklyn Acquisition Sub, Inc. entered into the “Acquisition Agreement.” The Acquisition closed contemporaneously with the execution and delivery of the Acquisition Agreement. At the closing: • Brooklyn acquired all of the outstanding equity interests of Novellus, Inc. as the result of the merger of Brooklyn Acquisition Sub, Inc. with and into Novellus, Inc., following which, Novellus, Inc., as the surviving corporation, became Brooklyn’s wholly owned subsidiary and Novellus Ltd. became Brooklyn’s indirectly owned subsidiary. • Brooklyn acquired 25.0% of the total outstanding equity interests of NoveCite. Brooklyn delivered consideration for the Acquisition totaling $124,022,181, which consisted of (a) $22,822,181 in cash and (b) 7,022,230 shares of common stock, which under the terms of the Acquisition Agreement were valued at a total of $102,000,000, based on a price of $14.5253 per share. The Acquisition Agreement contains customary representations, warranties and certain indemnification provisions. A total of 740,766 of the shares issued as consideration have been placed in escrow for a period of up to 12 months in order to secure indemnification obligations to Brooklyn under the Acquisition Agreement. The Acquisition Agreement also contains non-competition and non-solicitation provisions pursuant to which Novellus LLC has agreed not to engage in certain competitive activities for a period of five years following the closing, including customary restrictions relating to employees. No employees of Novellus Ltd. or Novellus, Inc. prior to the Acquisition continued their employment, or were otherwise engaged by Brooklyn, following the Acquisition. In connection with the Acquisition, the co-founders of Novellus, Ltd. entered into lock-up agreements with respect to 3,377,690 of the shares received in the Acquisition, and Brooklyn’s Chair of the Board of Directors and its Chief Executive Officer and President entered into identical lock-up agreements with respect to their current holdings of Brooklyn stock. Each lock-up agreement extends for a period of three years, provided that up to 75% of the shares of common stock subject to the lock-up agreement may be released from the lock-up restrictions earlier if the price of common stock on the NYSE American stock exchange exceeds specified thresholds. The lock-up agreements include customary exceptions for transfers during the applicable lock-up period. The Company expects the Acquisition will advance its evolution into a platform company with a pipeline of next-generation engineered cellular, gene editing and cytokine programs. In addition, the acquisition of Novellus, Ltd. builds on the License Agreement. (See Note 9.) The completion of the acquisition of Novellus, Ltd. relieved Brooklyn LLC from potential obligations to pay Novellus, Ltd. certain upfront fees, clinical development milestone fees and post-registration royalties under the License Agreement. The agreement with Factor Bioscience Limited (“Factor”) under the License Agreement, which grants Brooklyn LLC exclusive rights to develop certain next-generation mRNA gene editing and cell therapy products, remained unchanged. Although Brooklyn acquired all of the outstanding equity interests of Novellus, Inc., the Company accounted for the Acquisition as an asset acquisition (as the assets acquired did not constitute a business as defined in Accounting Standards Codification (“ASC”) Topic 805, Business Combinations), and was measured by the amount of cash paid and by the fair value of the shares of common stock issued. As a result, substantially all of the value acquired was attributed to IPR&D, with the exception of the cash paid for the investment in NoveCite, which is being accounted for as an investment in equity securities, as discussed further below. Brooklyn paid $22,853,608 in cash, net of cash acquired, as part of the consideration for the Acquisition, of which $1,000,000 was paid in cash for the investment in NoveCite. Brooklyn also issued 7,022,230 shares of the Company’s common stock, of which 3,644,540 shares are unrestricted and 3,377,690 shares are subject to the three-year lockup. The unrestricted shares were valued at $10.05 per share, which was the closing price of Brooklyn’s common stock on July 16, 2021. The fair value of the restricted shares was discounted by approximately 35% to $6.53 per restricted share, which was derived from the average discount rate between the Black Scholes and Finnerty valuation models. The resulting fair value of the asset acquired is as follows:
| Shares Issued |  | Fair Value Per Share |  |  | Fair Value of Consideration |
Cash paid |  |  |  |  |  | $ | 22,882,181 |
Cash acquired |  |  |  |  |  |  | (28,573 | )
Unrestricted shares |  |  | 3,644,540 |  |  | $ | 10.05 |  |  |  | 36,627,627 |
Restricted shares |  |  | 3,377,690 |  |  |  | 6.53 |  |  |  | 22,056,316 |
Total fair value of consideration paid |  |  |  |  |  |  |  |  |  |  | 81,537,551 |
Less amount of cash paid for NoveCite investment |  |  |  |  |  |  |  |  |  |  | (1,000,000 | )
Fair value of IPR&D acquired |  |  |  |  |  |  |  |  |  | $ | 80,537,551 |
IPR&D that is acquired through an asset purchase that has no alternative future uses and no separate economic values from its original intended purpose is expensed in the period the cost is incurred. Accordingly, the Company expensed the fair value of the IPR&D during the third quarter of 2021 in the amount of $80,537,551. Investment in NoveCite As a result of the Acquisition, Brooklyn owns 25% of NoveCite; Citius Pharmacueticals, Inc. (“Citius”) owns the remaining 75%. A member of the Company’s management holds one of three board seats on NoveCite’s board of directors in an advisory-only capacity. Citius’s officers and directors hold the other two board seats. Citius also retains the ability, in its sole discretion, to increase the size of the board of directors of NoveCite. Pursuant to a subscription agreement, as amended, between NoveCite and Novellus, LLC (the former parent of Novellus, Inc.), which was further amended and assigned to Brooklyn by Novellus, LLC upon the completion of the Acquisition, Citius has complete operational control and financial responsibility for NoveCite. Citius’s officers are also the officers of NoveCite and oversee the business strategy and operations of NoveCite. Therefore, despite Brooklyn’s ownership of greater than 20%, which leads to a presumption that in the absence of predominant evidence to the contrary, an investor has the ability to exercise significant influence over an investee, Brooklyn does not exercise any significant influence over NoveCite or its board of directors. Brooklyn also has no contractual rights in the profits or obligations to share in the losses of NoveCite. Accordingly, the Company is accounting for its interest in NoveCite under ASC Topic 321, Investments – Equity Securities. Because NoveCite’s stock is not publicly traded and, therefore, does not have a readily determinable fair value, the Company has elected to account for its investment at cost, which was $1,000,000. The Company will make adjustments to this amount when there are observable transactions for the identical or similar equity securities of the same issuer that would provide an indicator of fair value. In addition, if qualitative factors indicate a potential impairment, fair value must be estimated and the investment written down to that fair value if it is lower than the carrying value.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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